Tech firm tracking road to riches

Seven years ago, Medidata Solutions had eight employees working in a 1,000-square-foot office in midtown. Today, the software company boasts a staff of 434 and satellite offices in Edison, N.J., Houston, London and Tokyo.

Medidata is one of the city's fastest-growing homegrown technology firms, having carved out a prominent place in a growing field: development of software used by pharmaceutical, biotech and medical device researchers to collect and manage data in clinical trials. It has raised $20 million in venture capital funding and has set its sights on an initial public offering.

"We have experienced tremendous growth," says Tarek Sherif, Medidata's chief executive as well as a co-founder. "Our vision is to change the clinical development landscape."

Demand drivers

Medidata, which sells multiyear subscriptions to its proprietary Web-based system, reported 2006 bookings of $129 million — nearly double those of 2005. The privately held firm declines to provide more detailed financial figures or disclose its revenue.

Its success has been fueled by the need to speed the development and introduction of new drugs and devices by using software to automate each step of the clinical trial process.

By year-end, software will be used to manage data in half of clinical trials worldwide, versus just 20% in 2004, according to research firm Health Industry Insights. Medidata and other electronic data capture providers are expected to generate $358 million in global revenues this year, 15% more than in 2006.

Until Medidata and Phase Forward, in Waltham, Mass., emerged as the market leaders, most companies that used software for trials relied on homegrown technology or a hodgepodge of providers.

Phase Forward, which went public in 2004, reported revenue of $107 million last year, at least 75% of which came from its electronic data capture business. Chief Executive Bob Weiler calls Medidata a major competitor. "We know we lose customers to them," he says.

Medidata, which expects to increase staff by 25% to 30% this year, needs to grow to meet demand. Since 2002, the firm has raised over $20 million and is now mulling a bigger strike. Medidata recently hired an investment bank to explore an IPO, and analysts say the firm is likely to register for one this year. It would be the first Manhattan software firm to go public since the dot-com crash.

Only viable option

Though the market doesn't have a big appetite for software IPOs, an offering might be Medidata's only viable option. Analysts say the firm isn't a good merger or acquisition target, because its asking price is high and the field has few players.

"The public equity market provides the best vehicle for Medidata to grow," says Chris Connor, senior research analyst at Health Industry Insights.

Also weighing in favor of an IPO is the fact that drug companies, a big part of Medidata's customer base, prefer to deal with public companies because of the financial transparency.

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